The expected small-cap rally was part of a larger Trump-inspired equation that also was supposed to see a big year for banks, materials and industrials. Banks were supposed to benefit from higher rates as well as a relaxed regulatory environment, while materials and industrials looked to gain from a surge in infrastructure spending.
All three areas, though, have underperformed the broader market. Large-caps have outperformed as earnings have jumped, but investors have gotten increasingly defensive.
Wall Street, however, has not given up on small-caps. Lori Cavalsina, managing director at Credit Suisse, sees the factors that initially pushed the play coming back into view.
While acknowledging that "the case is not clear-cut," Cavalsina expects the case for rising rates is still solid amid stronger growth later this year, while the slide in the Russell 2000 has made a more compelling valuation argument.
In addition, Credit Suisse is more optimistic on U.S. growth than Jefferies, with GDP projections of 2.3 percent in both 2017 and 2018. The 2 to 3 percent range is the sweet spot for small-caps where they outperform their large-cap counterparts.
And earnings are expected to improve as well, with the firm projecting 13.7 percent growth in 2018 that will outpace large-caps (9.7 percent) and mid-caps (10.6 percent.)
Finally, the firm is making the biggest bet of all — that the Trump trade is not, in fact, dead and will resume and bring small-caps along for the ride.
"The small/large trade has remained closely aligned with public views on Trump," Cavalsina said in a note. "We think small caps are still being treated as a way to express faith in the reflation trade, and that perceptions of Trump continue to be a driver there."
Cavalsina also isn't worried about a pullback, which she said will only make small-cap valuations more compelling. Indeed, Jefferies' muted projections still imply a 4 percent increase in the Russell 2000 from current levels.WATCH: Analyst on what parts of small-cap space could grow